USD/CAD consolidates near multi-month highs – BBH

USD/CAD is holding near multi-month highs above 1.4100 ahead of Canada’s October jobs report, which will test the Bank of Canada’s guidance following last week’s 25bps rate cut, BBH FX analysts report.

BOC easing expectations limited by hot inflation

"USD/CAD is consolidating near multi-month highs just above 1.4100. Canada’s October labor force survey is the focus (1:30pm London, 8:30am New York). The data will challenge the Bank of Canada’s (BOC) guidance that it might be done easing after cutting the policy rate 25bps to 2.25% last week."

"The economy is expected to lose -5k jobs in October after strong gains of 60.4k in September and the unemployment rate is projected to remain at a four-year high of 7.1% for a third straight month. The BOC’s Q3 business outlook survey indicates subdued hiring intentions over the next 12 months."

"We doubt the BOC slashes the policy rate below the lower end of its estimated neutral range of 2.25% to 3.25%, which limits CAD downside. Canada’s government turned on the fiscal tap to fund an increase in capital investment, and underlying inflation is running hot. The swaps market is pricing 44% odds of a 25bps cut over the next twelve months and rate hikes in the next two years."